European Research Studies

Volume XIX, Issue 4, 2016

pp. 140 - 157

The Shariah Financial Accounting Standards: How they

Prevent Fraud in Islamic Banking
Tulus Suryanto1, Ridwansyah Ridwansyah2

Abstract:

This study aims to investigate the influence of Shariah financial accounting standards, the
independence of the Shariah Supervisory Board and Auditor Competency Shariah to the
prevention of fraud in Islamic banks in Indonesia. Sampling using saturated sample or the
entire population of as many as 48 people include auditors in Islamic banking and Islamic
Supervisory Board analysis tool using regression analysis using F test and t test with SPSS
ver.17.00. The results showed that the Shariah financial accounting standards, the
independence of the Shariah Supervisory Board and Auditor Competency Shariah
simultaneously affect the prevention of fraud in Islamic banks. Islamic financial accounting
standards have significant effect on the prevention of fraud in Shariah banks. Variables such
as independence of the partial Shariah Supervisory Board has no effect on the prevention of
fraud in Shariah banks while Islamic auditor competence variables have partially significant
effect on the prevention of fraud in Shariah banks.

Key Words: Shariah financial accounting standards, supervisory board, competence of

Shariah auditor, fraud prevention.

1
Faculty of Islamic Economic and Business, State Islamic Institute of Raden Intan Lampung,
Indonesia, (62-812) 71953909, tulus@iainradenintan.ac.id.
2
Faculty of Islamic Economic and Business, State Islamic Institute of Raden Intan Lampung,
Indonesia, (62-811) 798172, ridwansyahxanda@yahoo.co.id
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1. Introduction

The rapid development of Islamic/Shariah banking in Indonesia has a positive

implication for the Indonesian banking industry. Shariah banking is an alternative
choice for muslims to save money. They feel more secure as Shariah banking
provides a particular service different from the services of conventional banking,
which is the assurance of banking operation which meets Islamic law and does not
break the Shariah principles. In order to maintain customers’ trust, especially with
regard to the facilities of Islamic banks, the banks need to keep their operational
systems from violating the principles of Shariah . Islamic banking is set in Shariah
Financial Accounting Standard, which contains detailed rules and components of
Shariah -based banking. With the standard, financial statements are expected to
provide relevant and credible information. This accounting standard is also used by
users of financial statements, such as investors, creditors, governments, and public as
a reference for understanding and analyzing financial statements, so as to enable
them to make the right decisions.

Islamic banks as an alternative financial institution for saving fund has a special
section called the Shariah Supervisory Board (Dewan Pengawas Shariah / DPS ).
DPS is a unit which is only owned by companies/organizations run in accordance
with the Islamic law. “Auditing Standard for Islamic Financial Institutions (ASIFI)
has set a standard to provide guidance on the definition, designation, composition,
and the report of the Shariah supervisory board to ensure that the operations,
transactions, business of financial institutions are carried out in accordance with the
principles of Islamic / Shariah ” (Harahap, 2002) . “Found several measures to be
taken to ensure Shariah harmonization efforts in Indonesia such as deep
understanding on the fatawā brought into practices and strict monitoring on the
Islamic banks in applying the financial reporting standards that imply practicing the
fatawā, both de jure and de facto. The role of various actors involved in the
financial reporting standardization may impede Shariah h harmonization to take
place (Mukhlisin Muniarti and Hudaib dan Azid Toseef, 2015). The main task of this
Shariah supervisory board is to oversee the implementation of banks' operations and
their products so as not to deviate from the rules of Shariah (Antonio, 1999).

Another important thing in the Islamic banking industry is the availability of

competent Shariah auditors. Auditor Shariah has the function, among others, to
detect fraud occurring within the company or commonly known as the fraud
auditing, to uphold ethics profession is not expected to occur Fraud Auditing among
public accountants, so as to give the auditor's opinion is totally consistent with the
reports finance presented by the client and can avoid fraud (Suryanto, 2016). Fraud
reflects dishonesty. It refers to deviant behaviors related to legal consequences, such
as fraud, theft by deception, financial reporting fraud, corruption, collusion,
nepotism, bribery, abuse of authority and many others (The Development Finance
Comptroller (BPKP), Centre of Education 2008).
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Much research on the prevention of fraud in conventional banks has been conducted,
by Rahardjo (2001) who investigated the burglary of Bank Central Asia, Bank Bali
and Bank Lippo done by Indonesian crackers in 2000. The study demonstrates the
failure of risk controls in the use of information technology (Rahardjo, 2001). This
case indicates that the technology applied in enterprises, especially those engaged in
high-level transactions, such as banks, is still less sophisticated than that of the
running/practiced fraud. Biestaker, et al. (2006) conducted a survey involving 86
accountants, internal auditors and certified accountant investigators responsible for
identifying fraud actions. This study indicates that 34 methods of detection and
prevention of fraud were perceived to be effective by the respondents. The various
studies above show that fraud auditing is a serious issue, which is interesting to be
explored. Fraud seems to be inseparable of banking operation, including the
operation of Shariah banking. This is ironic, considering the fact that Islamic banks
represents Islamic spiritual values which emphasize the value of mirality and justice.

However, in reality, Islamic banking is still affected by fraud, for example, the case
of document forgery in Bank Shariah Mandiri which caused Rp. 102 billion loss.
Ahmad (2015), quoting Kasim et al. (2009 ), argued that “Shariah audit has indeed
highlighted prevalent problems facing the Islamic finance industry which include the
small and limited pool of available skilled human capital”. Shariah audit issues
include general issues facing the Islamic finance industry, such as limited
competent/skilled human resources (Kasim, Abraham & Solomon, 2009). According
to research conducted by Kasim, Abraham and Solomon, an important element of
Shariah audit is skilled/competent human resources. This element is the main capital
in the Islamic banking industry. In the Shariah industry, the competent human
resources include the independence of the Shariah Supervisory Board and Shariah
auditors, that are important elements of Shariah banking industry. It is expected that
the elements can prevent fraud to occur in the Islamic finance industry.

The following sections describe the relevant literature review and the method used in
this study to determine the existence of fraud in Shariah Banking. A detailed
discussion on the findings follows. Finally the conclusions are also presented.

2. Literature Review and Hypothesis Development

The available relevant theories are discussed in this section. The previous researches
and their findings on the relevant topics such as the shariah banking, the shariah
financial accounting standard, the independence of the shariah supervisory board,
the competence of shariah auditors and fraud prevention in shariah banks are
discussed. A hypothesis is also postulated to test.

Shariah Banking
Over the last decade, Shariah financial institutions have developed rapidly. Islamic
banking is one form of Shariah financial institutions which have a big potential.
Based on the Law of the Republic of Indonesia Number 7 of 1992 concerning
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Banking as amended by Act No. 10 of 1999, banks consist of commercial and rural
banks (BPR). Commercial banks are banks conducting conventional business and/or
based on Shariah principles which provide payment traffic in their activities. On the
other hand, rural banks refers to banks conducting conventional business and/or
based on Shariah principles which do not provide payment traffic services. Thus,
rural banks are financial institutions in the form of banks which apply Shariah -based
principles.

Shariah Financial Accounting Standard

From 1992 to 2002 or for ten years, financial institutions, which include both
Shariah banks and other Shariah entities, did not have specific Financial
Accounting Standard Statements (PSAK) which regulated Shariah-based
transactions and activities (Suryanto 2014). SFAS 59 as the first product of DSAK -
IAI for Shariah entities is both a recognition and existence of Shariah accounting in
Indonesia. This SFAS was ratified on May 1st, 2002, effective from January 1st,
2003 or the end of 2003 financial year. It is only valid for a short period of time.

IAS 59 is devoted to Shariah activities/transactions only in the Islamic banking

sector, such as Islamic insurance, Shariah mortgage, and Shariah cooperatives.
Therefore, for addressing the accounting demands of other Shariah entities, the
Shariah Accounting Committe – Financial Accounting Standard Board (KAS
DSAK) published six statements of financial accounting standard (PSAKs) for all
Shariah financial institutions, which were ratified on June 27th, 2007 and valid from
January 1st, 2008 or the end of 2008 financial year. The six PSAKs are Financial
Accounting Standard Statements, (PSAK) such as No. 101 concerning the
presentation of Shariah financial statements, Financial Accounting Standard
Statements (PSAK) No. 102 concerning murabahah accounting (buying and selling),
PSAK No. 103 concerning salam accounting, Financial Accounting Standard
Statements (PSAK) No. 104 concerning isthisna accounting, Financial Accounting
Standard Statements (PSAK) No. 105 concerning mudarabah accounting (profit
sharing), and PSAK No. 106 concerning accounting for musharaka (partnership).

The six PSAKs are accounting standards which govern all Islamic financial
transactions in various LKS. The development of the PSAKs is based on the
Indonesian Shariah Banking Accounting Statement (PAPSI) of the Bank of
Indonesia. Additionally, the development also refers to the fatwa of Shariah
financial agreement issued by the National Shariah Board – The Indonesian Council
of Ulama (DSN MUI).

The Independence of the Shariah Supervisory Board

Shariah banks as an alternative financial institution for saving fund which have a
specific unit called Shariah Supervisory Board (SSB). SSB is a unit which is only
owned by companies or organizations where their running is based on Islamic
Shariah. Auditing Standard for Islamic Financial Institutions (ASIFI) has set a
standard which provides guidance of the definition, designation, composition, and
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reports of Shariah Supervisory Board to ensure that the operations, transactions, and
business of the financual institutions are conducted based on Islamic Shariah
(Harahap, 2002). Generally, SSB consists of 3 persons or more who are experts of
Islamic Shariah. They are responsible for giving statements or fatwa to Shariah
banking products and supervising the implementation of the fatwa along with the
board of commissioners (Muhammad, 2002). More specifically, the main
responsibility of the Shariah Supervisory Board is to supervise the operations of
banks and their products so that they do not deviate from Islamic Shariah law
(Antonio, 1999).

The Competence of Shariah Auditors

Internal audit is an independent activity that provides objective assurance and
consulting designed to add value and improve the operation of an organization. In
Islamic banking, Shariah auditors are required to be competent in their field. The
Shariah auditors help organizations accomplish their objectives by bringing
systematic and disciplined approaches to evaluate and improve the effectiveness of
risk management, control and governance process (The IIA Research Foundation,
2011). Shariah audits are carried out by internal parts/elements of organizations to
improve the organizations’ operations and reduce the possibility of negative things
to occur, including unreliable financial reporting.

In Shariah banking, internal auditors assist the management in designing and

maintaining the adequacy and effectiveness of internal control structure. The Shariah
auditors are also responsible for assessing the adequacy and effectiveness of each of
the control system which guarantees the quality and intergrity of the financial
reporting process.

Fraud Prevention in Shariah Banks

Fraud is a despicable act seen from the aspect of religiosity and diversity. Such an
act negatively impacts other parties in terms of financial aspect. The efforts to
reduce fraud is divided into three phases. The first phase is the phase of fraud
prevention measures. The most effective way is through changes in behavior and
organizational culture that give more attention to fraud. Efforts are implemented
through corporate governance structure, tone at the top, setting realistic goals and
policies as well as procedures to prevent deviation of acts (Singleton, 2010).
Albercht (2003) argues that the prevention of fraud can be achieved through efforts
to create a culture of honesty, openness, and minimizing the fraud actions.

The second phase is the detection of fraud. This can be done by observation
(surveillance), anonymouse tips, sudden audits, legal actions, and the enforcement of
ethics and policies related to fraud. Other factors that can reduce fraud are rewarding
employees who contribute to the detection of fraudulent behaviours and enforcing
anti-fraud culture (Singleton, 2010). The detection phase of fraud is different from
investigation. This stage aims to identify symtoms that often occur, which lead to
fraud. On the other hand, at the investigation stage, such aspects as who does the
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fraud, the scheme used, the time when the fraud occurs, motivations underlying the
fraud, and the assets/funds that have been taken have been determined.

Fraud detection can be done through two approaches: inductive and deductive
methods. The inductive method is done by commercial data-mining software and
digital analysis of company databases. The deductive method is carried out by the
following steps: understanding the business process of organizations, understanding
the types of fraud that might occur, determining the symptoms that often occur,
using the database and information systems to look for symptoms and determinining
whether there are acts of fraud or other factors that cuase the symptoms to occur
(Albercht, 2003).

Hypothesis Postulation
Islamic financial system does not only cover commercial transactions, but also deals
with financial institutions to meet the demands of the industry. Financial systems or
financial institutions which are based on Islamic principles are free from the element
of riba or ursury.

Financial contracts which can be developed to replace riba are: musharaka and
mudharaba. With the Shariah accounting standard, financial statements are
expected to provide information that is relevant and crideble. The independence of
Shariah Board is an obligation that must be carried out by the Shariah Supervisory
Board as a party that is entrusted with the responsibility to make reports and
verification; the outputs of the reports and verification are not only used by clients,
but also by third parties or public (investors/shareholders, creditors, government,
society). The Shariah Supervisory Board is a profession emerging due to the public
demand for a guarantee of consistency and loyalty in the implementation of Islamic
Shariah.

In addition to Shariah Financial Accounting Standard and the independence of

Shariah Board, another important factor in the Islamic banking industry is the
competence of Shariah auditors. Shariah auditors are expected to use their
competence in undertaking independent assessments of any activities aiming to
encourage the compliance with conditions set by management and to improve the
function of control by providing constructive and protective suggestions so that the
goals and objectives of banks can be achieved efficiently. The sustainability of
Shariah financial accounting standard, the independence of Shariah board, and the
competence of Shariah auditors are expected to detect and prevent fraud to occur in
the banking industry.

Research related to the impact of the implementation of financial accounting

standard toward fraud prevention has been done by Santoso (2008) and Darwanis
(2013). The findings of the research show that the implementation of financial
accounting standard affects the prevention of fraud. Furthermore, the research of
Widiyanto (2010) and Junaedi (2014) indicates that the independence of Shariah
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Supervisory Board is proved to reduce planned or hidden crime. Other studies by

Rosnida (2011), Hendro (2006) and Suryanto (2016), examining the competence of
auditors on the prevention of fraud, show that the competence of the auditors affects
the prevention of fraud. Based on the previous studies, two hypotheses are discussed
in this study as follows.

3. Research Methodology

This section discusses the sampling method, data collection process and validity
tests. The end of this section discusses the formation of hypothesis and tests the
statistical techniques used in this study. The population of this research is
Islamic/Shariah banking industry in Indonesia on May 2016, consisting of:
a. Islamic Conventional Banks : 12 banks
b. Islamic Business unit Bank : 22 banks
c. Islamic Rurel Bank : 166 banks

The samples or subjects of the research are Islamic/Shariah banks located in Bandar
Lampung, Indonesia. The Islamic/ Shariah banks in Bandar Lampung were taken as
sample because they are regarded as representing the population which applies
Shariah financial accounting standard in Shariah banking industry in Indonesia.
This is due to the consideration that the application of accounting standard in
Shariah banks in Indonesia is relatively homogeneous. It adheres the Guidelines of
Financial Accounting Standard (PSAK) and the Accounting Guidelines for
Indonesian Shariah Banking (PAPSI) as stipulated in the Guidelines of the Bank of
Indonesia (PBI).

The samples are Shariah internal auditors and Shariah supervisory board members.
One hundred copies of the questionnaire were distributed. From that number, 65
questionnaires were returned by the participants; 17 questionnaires were incomplete.
Therefore, 48 questionnaires were processed.

Data Collection and Quality Tests

This research employed census sampling for data collection. It involved all Shariah
internal auditors and Shariah supervisory board members. The data quality tests in
this study comprises reliability and validity tests using SPSS software version 18.0.
The reliability test was aimed to measure the questionnaire which is an indicator of
variables or constructs. The measurement of reliability was done through Cronbach
Alpha test. A construct is categorized as reliable if it generates Cronbach Alpha
value ≥ 0.60 (Ghozali, 2005). The validity test was used to determine whether the
questionnaire was valid or not. A questionnaire is said to be valid if the questions are
able to reveal data which the questionnaire measures. The validity test was done by
implementing bivariate correlation among indicator scores of total constructs. If the
correlation indicates significant results, each question indicator is valid. One way to
test the normality is using Kolmogorov-Smirnov on the residual standard value
resulting from the regression equation. If the result of one sample of the
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Kolmogorov-Smirnov is greate than the significant level used (α = 0.05), the

distribution of data spreads normally and vice versa. This test is employed to
determine whether there are high or perfect correlations between variables in the
regression model. When the independent variables are perfectly correlated, the
regression equation resulted cannot be used. The statistical instrument which is often
used to test multicolinearity disorders is the value of tolerance or VIF (Variance
Inflation Factor). The limit of tolerance value is > 0.10 an VIF < 10 (Suliyanto,
2011)

This test is used to determine whether variant inequality of the residual occured from
one observation to another in the regression model. In this study, Gleyser test was
used to detect the presence of heterocedasticity by regressing the absolute value of
residual with independent variables with the regression equation (Ghozali, 2005).

Hypothesis test
The two hypotheses that were developed based on the previous studies and with the
support of the literature review of this study are as follows:

H1. Shariah financial accounting standard, the independence of Shariah Board, and
the competence of Shariah auditors have a simultaneous effect on the prevention
of fraud.
H2. Shariah financial accounting standard, the independence of Shariah Board, and
the competence of Shariah Auditors has a partial effect on the prevention of
fraud.

The above hypotheses were examined using F and t statistics. The F test was
conducted to examine the simulatenous effect of the implementation of Shariah
financial accounting standard, the independence of Shariah Board, and the
competence of Shariah auditors against fraud prevention in Islamic banks in
Indonesia. The t test, also known as the individual significance test, aims to show
how the independent variables particlly affect the dependent variables.

Data analysis
For easy understanding the variables have been given short names as follows. These
names are used in the following sections, specifically in the multicolinearity,
heteroskedasticity test and ANOVA.

AKS : Shariah accounting standard

IDS : The independence of Shariah Board
KA : The competence of Shariah auditors
PF : Fraud prevention

Data Quality Test

The data quality test includes reliability and validity tests. The reliability test was
conducted with Cronbach Alpha test using SPSS. A construct is said to be reliable if
 The Shariah Financial Accounting Standards: How they Prevent Fraud in Islamic Banking

148

it generates Cronbach Alpha > 0.60 (Ghozali, 2005). The results indicate that the
data are reliable and valid. The summary of the test results is presented in the
following Tables 1 and 2.

Table 1. Results of Reliability Test

Variables Cronbach Alpha Value Category

Shariah financial
accounting standard 0.733 Reliable
The independence of
Shariah Board 0.729 Reliable
The competence of
Shariah auditors 0.841 Reliable
Fraud prevention 0.970 Reliable

Table 2. Results of Validity Test

Range of
No Variable Significance Category
Correlation
Shariah financial
1 accounting standard 0.780**-0.811** 0.01 Valid
The independence of 0.01 Valid
2 Shariah Board 0.776**-0.816**
The competence of 0.01 Valid
3 Shariah auditors 0.796**-0.854**
4 Fraud prevention 0.772**-0.854** 0.01 Valid
Note: (**) means significant correlations in each number and have the possibility of two-
way (two-tailed)

Classic Assumption Test

In order to test normality of the data Kolmogorov Smirnov statistic was used. Based
on the normality test, all variables have normal distribution. The significance value
is bigger than 0.05. Therefore, it can be concluded that all variables have normal
distribution. Multicolinearity test was used to find the correlation among the
dependent variables. Table 3 reveals the results of multicolinearity test. As presented
on the above table, the VIF value of each variable is less than 10 and the tolerance
value is less than 1. Therefore, all variables are free from the symptoms of
multicolinearity.
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Table 3. Multicolinearity Test and results

Model Unstandardized Standardized T Sig. Collinearity
Coefficients Coefficients Statistics
B Std. Error Beta Tolerance VIF
(Constant) -.996 1.011 -.985 .327
total_AKS .169 .068 .059 2.496 .014 .668 1.498
total_IDS -.034 .052 -.013 -.657 .513 .982 1.018
total_IA 1.405 .035 .947 40.254 .000 .668 1.496
Note: a. Dependent Variable: total_PF

The results of the heterockedasticity test using SPSS are presented in the following
Table 4.

Table 4. Results of Heteroskedasticity Test

Coefficientsa

Unstandardized Standardized Collinearity

Coefficients Coefficients Statistics
Model B Std. Error Beta t Sig. Tolerance VIF
1 (Constant) -.334 1.011 -.330 .742
total_AKS -.017 .067 -.032 -.260 .796 .677 1.477
total_IDS -.053 .052 -.104 - .310 .983 1.018
1.020
total_KA .039 .035 .138 1.121 .265 .678 1.474
a. Dependent Variable: Absut

The results show that sig > alpha with alpha 0.05. Therefore, there are no symptoms
of heterocedasticity in this model.

Hypotheses Test
F Test
To test the effect of the independent variables on the dependent variables, F test was
used. From the calculation, with a confidence level of 95% or α = 0.05, Ftable 2.719
was obtained. The Fcalculation was 869.351. The results of the F test are presented in
the following Table 5.
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150

Table 5. Results of ANOVA

Model Sum of Squares Df Mean Square F Sig.

Regression 4774.987 3 1591.662 869.351 .000
Residual 175.763 96 1.831
Total 4950.750 99
Note: Predictors: (Constant), total_AKS, total_IDS, total_KA

F-test
Figure 1 illustrates the results of the hypotheses test. This shows that the value of
Fcalculation > value Ftable is on the rejection area of H0, therefore, it can be concluded
that the variables of Shariah financial accounting standard, the independence of
Shariah Board, and the competence of Shariah auditors have a simulataneous effect
on fraud prevention in Shariah banks in Indonesia. The first hypothesis, that
Shariah financial accounting standard, the independence of Shariah Board, and the
competence of Shariah auditors have a simulataneous effect on fraud prevention, is
accepted.

Rejection Area
H0
Acceptance Area
H0

2,719 869,351

Figure 1. F-curve

t- Test
To determine the partial effect of Shariah financial accounting standard, the
independence of Shariah Board, and the competence of Shariah auditors toward
fraud prevention, t test was used. From the analysis using error rate (α) = 0.05, t tabel
1.990 was revealed. The results of SPSS outputs are presented in the following Table
6.
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Table 6. Results of t test

Model Unstandardized Standardized T Sig.

Coefficients Coefficients
B Std. Error Beta
(Constant) -.996 1.011 -.985 .327
total_AKS .169 .068 .059 2.496 .014
total_IDS -.034 .052 -.013 -.657 .513
total_KA 1.405 .035 .947 40.254 .000
Note: a. Dependent Variable: total_PF

From the above calculation, the following t calculation was obtained, presented in the
following Figure 2.

tX3 = 2,496

tX2= -0,657

tX3= 0,254

Rejection H0

Rejection H0

t table = -1,990 t table = 1,990

Figure 2. t Test Curve

4. Results and Discussion

Descriptive Statistics
Data of this study were collected by distributing a questionnaire to the respondents,
who were Shariah internal auditors and Shariah Supervisory Board members at
Shariah conventional banks, Shariah banks, and Shariah peoples credit banks in
Bandar Lampung. Forty eight respondents were involved in the study. The
chaaracteristics of the respondents are presented in the following Table 7.
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152

Table 7: Characteristics of Respondents

Item Category Number Percentage

Male 27 56.25
Gender Female 21 43.75
The number of questionnaires processed 48 100
≤ 40 year 8 16.67
Age > 40 year 40 83.33
The number of questionnaires processed 48 100
S2 (master degree) 17 35,41
Education S1 (bachelor) 21 43,75
D3 (diploma) 2 4,17
SMA (senior high school) 6 12,50
SMP (junior high school) 2 4,17
The number of questionnaires processed 48 100

Findings
The influence of Shariah financial accounting standard on fraud prevention in
Shariah banks: From Figure 2, it is know that the t calculation the variable Shariah
financial accounting standard was 2.469. Using α = 0.05, t table 1.990 was obtained.
This suggests that the variable Shariah financial accounting standard has a
significantly positive influence on the prevention of fraud in Shariah banks.
Therefore, the hypothesis that Shariah financial accounting standard partially affects
the quality of fraud prevention in Shariah bank is accepted.

The influence of the independence of Shariah Board on fraud prevention in Shariah

banks: It is found that the t calculation of the independence of Shariah Board was -
0.657. By using α = 0.05, t tabel 1.990 was obtained. It can be seen that the value of
t calculation < value t table. This indicates that the independence of Shariah Board has no
effect on the prevention of fraud in Islamic banks. Therefore, the hypothesis stating
that the independence of Shariah Board has a significant effect on fraud prevention
in Islamic banks is rejected.

The influence of Shariah auditors’ competence on fraud prevention in Shariah

banks: As shown in Figure 2, t calculation of the competence of Shariah auditors was
40.254. By using α = 0.05, t table 1.990 was obtained. From the results, it was
revealed that t calculation > value t table. This indicates that the competence of Shariah
auditors have a positive effect on the prevention of fraud in Islamic banks.
Therefore, the hypothesis that the competence of Shariah auditors has a partial
effect on the quality of fraud prevention in Shariah banks is accepted.

From the calculation result with a confidence level of 95% or α = 0.05, Ftable of
2.719 was obtained, while the value of Fcalculation was 869.351. So, Fcalculation > Ftable.
Therefore, Shariah financial accounting standard, the independence of Shariah
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153

board, and the competence of Shariah auditors simulataneously affect fraud

prevention in Shariah banks. With the Shariah accounting standard, financial
statements may provide information that is relevant and credible. Accounting
standard is also used by users of financial statements, such as investors, creditors,
government, and public as a reference for understanding and analyzing financial
statements; this enables them to make appropriate/right decisions.

Therefore, Shariah accounting standard has an important role for the preparers and
users of financial statements, so that they have the same interpretation of information
contained in the financial statements. This will minimize the occurrence of fraud.
The independence of Shariah board is necessary in Shariah banking. It will increase
the application of Shariah law in the practices of Islamic banking. Additionally,
competent auditors are needed to prevent irregularities in the activities of Islamic
banking.

The variables are important as fraud has been widespead and manipulative tricks
have often been used. The synchronization of the variables of Shariah financial
accounting standard, the independence of Shariah Board, the competence of
Shariah board will assist in the early prevention and detection of fraud. This
research supports the discourse presented by DR. Mohammad Hudaib in the
Discussion Forum of Shariah Financial Institutions (2015) related to the prevention
of fraud, that there are four important issues related to fraud prevention in Islamic
banking; the four should be connected to each other. They are the clarity of the
scope of Shariah audits, SAK-based recording which separates the conventional
and Shariah, the competence of auditors, and the independence of Shariah board.

a. Shariah accounting standard has a partially significant effect on the

prevention of fraud in Shariah banks
It is revealed that tcalculation of Shariah accounting standard was 2.469. By using α =
0.05 ttabel 1.990 was obtained. Thus, tcalculation > ttable. The variable Shariah accounting
standard has a significant positive effect on the prevention of fraud in Shariah
banks. This study shows that the improvement of record keeping based on
procedures and Shariah financial accounting standard will have implications for the
prevention of fraud in Islamic banks. The research highlights Santoso’s (2008) and
Darwanis’ (2013) studies which suggest that the application of financial accounting
standard has an implication for the prevention of fraud.

b. The independence of Shariah board has a partially significant effect on the

prevention of fraud in Shariah banks
Based on t calculation, the variable of the independence of Shariah board was -0.657.
By using α = 0.05, t table 1.990 was obtained. Thus, it can be seen that t calculation <
value t table. This shows that the independence of Shariah board do not affect the
variable of fraud prevention in Shariah banks. Therefore, the hypothesis that the
independence of Shariah board has a partially significant effect on the prevention of
fraud in Shariah banks is rejected.
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154

Shariah supervisory board is an independent institution in Islamic banks which is

responsible for supervising the compliance of the operations of the banks to Shariah.
Its duties and functions have a legal basis in terms of fiqih and banking legislation
in Indonesia. However, in Shariah banking industry, the Shariah supervisory board
is still often considered as not having absolute independence, despite the fact that all
Shariah banks have Shariah supervisory board. Ideally, the Shariah supervisory
board is inseparable from Shariah banks, as Islam does not recognize the separation
of business and religion (Ihsan & Prasetyaningrum, 2004). This arises because,
unlike external auditors, members of Shariah supervisory board are bank
employees and paid by the banks. This causes a debate as Shariah supervisory board
produces independent reports to shareholders. Due to such an aspect, the
independence of Shariah supervisory board is often questioned.

This is different from the results of Widiyanto’s (2010) and Junaedi’s (2014) studies
which show that the independence of Shariah board is proved to reduce planned or
hidden crime. However, Karim’s (1999) study indicates that the independence of
Shariah supervisory board is still questioned; the Shariah supervisory board does
not guarantee its ability to detect fraud.

c. The competence of Shariah auditors has a partially significant effect on the

prevention of fraud in Shariah banks
Based on the calculation, the t calculation was 40.254. By using α = 0.05, t table 1.990 was
obtained. It was revealed that t calculation > value t table. This shows that the variable of
the competence of Shariah auditors has a positive effect on the prevention of fraud
in Shariah banks.

Auditors must have the ability to understand the criteria used and to determine
evidence needed to support conclusions which they make. They must also be
independent. The information which the Shariah auditors collect will not be useful
if they are not independent; the information should not be biased (Arens &
Loebbecke, 2009).

The competence of auditors is needed by the auditors to maintain the quality of their
work. Auditors who have adequate competence should be able to detect fraud or
abuse in their workplace. The analytical skill possessed by auditors will help them
prevent fraud to happen in their institutions (Sawyer, 2006).

This finding supports the research of Hendro (2006) and Rosnidah (2011), which
suggests that competence and professionalism are key requirements of auditors;
competence is part of professionalism. Good competence and professionalism of
auditors will help them detect fraud in their workplace.

5. Conclusions
 T. Suryanto, R. Ridwansyah

155

Shariah financial accounting standard, the independence of Shariah board, and the
competence of Shariah auditors have a simulataneous effect on the prevention of
fraud in Shariah banks in Indonesia. The syncronization of the three variables will
help to detect and prevent fraud to occur. This research supports the discourse
proposed by Dr. Mohammad Hudaib in the Discussion Forum of Shariah Financial
Institutions (2015) related to the prevention of fraud, that there are four important
issues related to fraud prevention in Islamic banking; the four should be connected to
each other. They are the clarity of the scope of Shariah audits, SAK-based recording
which separates the conventional and Shariah, the competence of auditors, and the
independence of Shariah board.

Shariah accounting standard has a partial effect on the prevention of fraud in Shariah
banks. The improvement of book keeping based on procedures and Shariah
financial accounting standard will have implications for the prevention of fraud in
Shariah banks. The research highlights Santoso’s (2008) and Darwanis’ (2013)
studies which suggest that the application of financial accounting standard has an
implication for the prevention of fraud.

The independence of Shariah supervisory board does not have a partial effect on the
prevention of fraud in Shariah banks. In Shariah banking, Shariah supervisory
board is often considered as having absolute independence. Almost all Shariah
banks have Shariah supervisory board. Ideally, Shariah supervisory board is
inseparable from the banks although it is an evaluative board. It is because Islam
does not recognize the separation of business and religion (Ihsan &
Prasetyaningrum, 2004). This is different from the research of Widiyanto (2010)
and Junaedi (2014) which shows that the independence of Shariah board will reduce
hidden or planned crime. However, this study aligns with the research of Karim
(1999) which suggests that the independence of Shariah supervisory board is still
questioned. Thus, the Shariah supervisory board does not guarantee its ability to
detect fraud.

The competence of Shariah auditors has a partial effect on the prevention of fraud in
Shariah banks. The competence of auditors is needed to maintain the quality of
auditors in performing their work. Auditors who have adequate competence should
be able to detect fraud and abuse in their workplace. The analytical ability of
auditors will help them prevent fraud to occur in their institutions (Sawyer, 2006).
This supports the research of Hendro (2006) and Rosnidah (2011) which show that
competence and professionalism are key requirements of auditors.

Suggestions

The data analyzed in this study are based on the perceptions of the respondents
which could change over time. Future research needs to conduct interviews or to get
involved directly in the activities of companies. Thus, the conclusions of this study
are based on data obtained with specific questionnaire. In this research, the number
 The Shariah Financial Accounting Standards: How they Prevent Fraud in Islamic Banking

156

of respondents involved is limited. Therefore, the results are not maximum. Future
research can involve more respondents so that the results can be generalized.

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